DRI Healthcare wins a target raise from Raymond James

Expecting more significant deals from biotech royalty company DRI Healthcare Trust (DRI Healthcare Trust Stock Quote, Charts, News, Analysts, Financials TSX:DHT.UN), according to Raymond James analyst Rahul Sarugaser, who kept an “Outperform” rating on the stock in a Monday update while raising his target price from C$13.50 to C$16.00.

DRI Healthcare, an open-ended biopharma royalty-holding trust, reported its first quarter 2023 results on May 11 for the period ended March 31. The company delivered $28.2 million in total income compared to $22.6 million a year earlier and adjusted EBITDA of $21.4 million compared to $17.8 million a year ago. (All figures in US dollars except where noted otherwise.)

“The recent additions to our portfolio are beginning to contribute cash flow and we continue to see strong performance from our assets.” said Behzad Khosrowshahi, Chief Executive Officer, in a statement. “Our robust pipeline of attractive transaction opportunities positions us well to execute on fundamentally accretive deals to provide value to our unit-holders.”

The stock bounced higher a couple of weeks ago after the company announced the sale of royalty interests in TZIELD to Sanofi for $210 million, having just bought the rights 50 days prior for $100 million.

On the Q1 results, Sarugaser said DRI delivered beats across the board, with net revenue of $28.2 million coming in ahead of his estimate at $23.7 million and the consensus estimate at $23.9 million. Adjusted EBITDA at $21.4 million was also better than Sarugaser’s forecast at $18.6 million and the Street at $18.7 million. Sarugaser noted that DRI ended the quarter with $10.5 million in cash and $315.6 million in debt.

The TZIELD sale was unique in DRI’s history, according to Sarugaser, who said in the company’s decades-long operating history (30+ years) it had never sold a royalty.

“While DRI now has a hole to fill in its long-term portfolio—current portfolio provides for stable to growing cash receipts up to 2025 now, not 2030—it has a proven track record of accretive deal making, plus ~$90 million more to work with than before ($20 million distributed in special dividend),” Sarugaser wrote.

The analyst said DRI will be looking for a home for all that dry powder and he expressed confidence that management can rebuild and grow its royalty cash flows and it continues to prove its ability to find underappreciated assets and acquire them at bargain rates.

“DRI indicates that its deal pipeline is as strong as ever; the biotech industry cash crunch is yielding a higher volume of opportunities with more favorable economics than DRI has seen in recent history. Management indicate they have ~$2 billion of deals in the pipeline, three of which are in exclusivity, seven deals in mid-process (full diligence/presented offers), and five deals in later stage,” he wrote.

At press time, Sarugaser’s new C$16.00 target represented a projected one-year return of 77 per cent.